The liquefied natural gas (LNG) market in China is experiencing a notable downturn, fueled by a combination of weak demand and decreasing costsThis trend is reflected in the statistics provided by Zhuochuang Information, a leading analytics firmAs of December 11, LNG prices in China settled at 5,665.26 yuan per ton, representing a 2.62% decrease from the previous week and a substantial drop of 610.2 yuan per ton, amounting to 9.72% lower than the end of November.

The analysis of this price reduction reveals intricate dynamics at playAccording to Li Xundong, an analyst from Zhuochuang Information, the persistent decline in LNG prices since the start of December can primarily be attributed to two major factorsFirst, during the first week of December, there was a significant increase in auction transaction prices for gas sources in the Northwest, soaring nearly 50%. Although this higher cost provided some support to large-scale suppliers, the LNG market within the country faced weakening supply and demand in early December

Advertisements

This diminishing strength meant that the previously enforced cost support started to fadeIn the second week, there was a noticeable reversal in auction prices for the Northwest gas sources, eliminating any remaining cost supportThis backdrop led to an ongoing price decline throughout the month.

Moreover, severe weather conditions, characterized by widespread rain and snow, add another layer of complexity to this scenarioThese conditions have negatively impacted transportation logistics, leading to a decrease in LNG demand for heavy trucksThis year, the city gas pipeline supply has been relatively ample, and the industrial segment’s supply and demand continue to recoverConsequently, the domestic LNG market is largely reliant on transportation fuel demandThe substantial drop in LNG refueling requirements for heavy-duty vehicles significantly affects overall LNG demand, escalating pressures on upstream producers and contributing to further price decreases.

Another expert, Yin Bin from Longzhong Information, echoed these sentiments, pointing out that since the onset of heating season, the production and sales rates of LNG factories have been disappointingly low

Advertisements

The prevailing market conditions — whereby supply exceeds demand — have rendered pressures on prices, making it difficult for LNG costs to see meaningful increases.

A glimmer of hope, however, exists for potential price recovery in the futureLi Xundong believes that a restoration in demand could bolster LNG pricesHe anticipates that as snow begins to melt and logistics returns to normal, the demand for gas, particularly for transportation, will bounce back to its previous levelsAdditionally, with the persistent low temperatures being experienced lately, the gas consumption needs from various cities and industrial clients are anticipated to undergo a significant surgeThis increase in consumption should encourage users who possess LNG storage equipment to replenish any recently depleted stock, thus providing further support to prices.

Furthermore, findings from Zhuochuang’s surveys indicate that market participants in locations such as Hebei, Beijing, Inner Mongolia, and Jilin have maintained optimistic forecasts regarding price increases

Advertisements

However, the magnitude of any such increase remains contingent upon inventory consumption levels in the days to follow, particularly in the context of ongoing cold weather conditions.

Expectations for December's market also suggest increased demand for LNG due to the seasonal needs for peak shavingYin Bin, from Longzhong, projected an average price in the domestic LNG market for December to hover around 6,000 yuan per ton, with an estimated consumption level of approximately 3.3 million tons.

Additionally, analyst Yang Yan from JLC reported a heightened activity of cold air during December, leading to increased urban fuel consumption, which might stimulate buying expectations for low-priced LNGAlthough the relaxed supply of pipeline gas presents a challenge, it remains likely that the overall LNG pricing trends will progress upwards but not excessively soGiven high-level inventory expectations in various regional reserves, competition within the LNG market is anticipated to become more fierce

• Kuaishou Restructures with Rotating Leadership
• Slowing Economic Growth in the United States
• A Crucial Deciding Moment for the Stock Market
• LNG Prices Fall on Weak Demand: Rebound Ahead?
• US-China Interest Rate Outlook

As operational forecasts for industries like ceramics in South China decline, the rise in industrial procurement for LNG remains questionable, leading to expectations for no substantial improvements in December LNG consumption.

Despite these challenges, the abundant supply of pipeline gas and the currently high levels of upstream LNG inventories are potential deterrents to any significant price increasesLi Xundong pointed out that many LNG factories have recently curtailed production due to insufficient gas source supplies, yet the government remains particularly keen on ensuring the delivery of pipeline gas, especially for residential purposesGiven the anticipated tranquil pipeline supply, there should not be a drastic rise in the market's LNG peak demand.

As it stands, the inventory levels at domestic LNG factories and receiving terminals are at mid-to-high levelsAccording to Zhuochuang’s estimates, since the nationwide heating commenced on November 15, LNG factory inventories have hovered around 40%, while receiving terminal inventories have been at around 70%. However, limited storage capacity in LNG factories means that the turn-over inventory level remains persistently above 60%, creating a bottleneck that mitigates any push for higher prices.

Looking ahead, Li Xundong speculates that as snow begins to melt and demand potentially rises, there could be upward movements in LNG pricing